Apple’s (NASDAQ:AAPL) HomePod went into its first holiday sales season heavily discounted by retailers, with some selling AAPL’s smart speaker for as low as $249. That move may have helped boost sales.
A new report by Strategy Analytics says HomePod shipments increased by 45% over the previous quarter. That sounds like good news — something that has been in short supply for Apple and its HomePod — but it’s actually not that great. Smart speakers were the hottest category in consumer electronics last year and overall industry shipments grew a whopping 95% in Q4.
As a result, even though HomePod shipments were up significantly, Apple ended up losing ground in smart speaker market share for the quarter, dropping to just 4.1% from the 6% level it had been holding at through 2018.
Apple HomePod Sales Fail to Translate Into Gain in Market Share
In the lead-up to Christmas, it wasn’t uncommon to find Apple HomePod sales. Retailers were discounting AAPL’s $349 smart speaker by as much as $100. That seems to have boosted HomePod numbers for the quarter, but it also appears that perhaps consumers took that extra $100 and bought several Amazon (NASDAQ:AMZN) Echo or Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) Google Home smart speakers.
According to a new report from market research firm Strategy Analytics, AAPL shipments of its HomePod smart speaker were up 45% compared to Q3, at 1.6 million units. A boost of 45% sounds great, until you see the context. Smart speakers were the hottest selling consumer electronics category in 2018 (shipments for the year hit 86.2 million units), and demand for the devices naturally spiked during the holiday shopping season. So yes, Apple improved — no doubt helped by the HomePod sales — but both Google and Amazon did better. A lot better. Amazon Echo shipments were up 91% and Google Home saw a 123% increase.
In fact, most companies making smart speakers did better than Apple. Strategy Analytics says overall, global smart speaker shipments grew 95% from Q3 to Q4 as holiday shoppers snapped up the devices. One company that notably fared worse than Apple was China’s Xiaomi, which saw its smart speaker shipments actually shrink for the quarter to 1.8 million units. However, even this poor performance still left Xiaomi on top of Apple, which once again failed to crack the top five.
Where Does This Leave AAPL and the HomePod?
To say Apple’s HomePod has failed to live up to expectations is probably an understatement. In the lead-up to its release, there was potential for the HomePod to give a real boost to the company’s revenue and to Apple stock. After all, AAPL was coming into a booming market that it had studied for several years, with a premium device that was expected to mop the floor with the competition. A repeat of what it had done with the iPod, iPhone and iPad.
As we all know, things didn’t turn out as planned. The HomePod release was delayed — missing an entire holiday shopping season — and with its high price, it landed with a thud when it was finally released last spring. HomePod sales were underwhelming (Strategy Analytics estimated Apple’s Q1 shipments at just 600K units) and AAPL’s share of the smart speaker market settled in at around 6% for most of 2018. And then, despite the demand for smart speakers as gifts and the ability to easily find HomePod sales with considerable discounts, Apple actually lost ground in Q4.
Siri’s performance compared to Alexa and Google Assistant is one issue. Tying the HomePod to Apple Music and refusing to support competing services like Spotify (NYSE:SPOT) are also problems. And as MacRumors points out, the HomePod still isn’t available in as many countries as the competition.
However, what’s becoming increasingly clear after a year of HomePod sales is that Apple needs a lower cost option if it wants to truly compete in the smart speaker market. A $349 speaker is a tough sell compared to competitors that start at under $50, even when retailers knock $100 off the price. There have been rumors since the HomePod launched that AAPL was considering a budget version of its smart speaker. With these latest numbers, the pressure is on the company to make that move in time to salvage the 2019 holiday shopping season.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.
